Monday, February 25, 2008

Economics as Religion

"I believe that people respond to incentives" is the creed of the religion of economics. You might throw something about "bounded rationality" in there for effect, but that doesn't get you too far. I've heard economists who espouse their belief system as "people respond to incentives" in the past. However, a discussion at the XS/FS conference on Saturday prompted me to write this post.

Basically, one guy was talking about trying to figure out how people make decisions by mapping brain activity by putting subjects in an fMRI while they made decisions. Someone brought up "emotions," whatever they may be conceptually or chemically. It was agreed that emotions are very complex and would be difficult to model. Next, SP said that she does not think that people make decisions based on their emotions. She stated the creed of the religion of economics and brushed aside emotion as a determinant of choices.

On the subject of emotions, why do they have to be discounted as a source for decision making? I like to be happy, so I'll undertake activities that make me happy. It adds to my utility. I am acting rationally and responding to incentives. One dimension of the incentive space is my emotional outcome.

My take on economics is that it is a useful set of tools for analyzing problems. It should not be a religion. While I believe that people respond to incentives, I know that you'll get different levels of response out of different individuals. Also, X could be a positive incentive to one person and a negative incentive to another, depending on their preferences. Admittedly, this makes it hard to model. I do believe that progress can be made in the neurochemical analysis of decision making, especially once finer measurement instruments are employed.